The UK and European Competition Law

 

Abstract

         In light of Brexit, the UK will not be able to remain in the EU’s  single market. However, since the UK was member of this market for roughly four decades, we are faced with a dilemma regarding the status of the UK with regards to EU Competition Law. The UK recognizes both that competition law is essential to good business and to trade relations, in particular in light of these uncertain times (where this has not developed as quickly in the EU as would be desired).Therefore, this recommendation seeks to establish how the UK should proceed in relation to EU Competition Law to ensure that trade and business are not undermined by Brexit. In this paper, King’s Think Tank recommends that the general framework of EU Competition Law be continuously maintained and re-introduced as domestic legislation, potentially as ‘the Competition Law Act 2019’. However, we suggest that certain amendments should be added if such Act would be adopted. An example of the proposed amendments is  the creation of Categories of legal standards of proof beyond the object effect distinction currently used by the European Courts of Justice (referred to in this article as the ECJ). Since the object effect distinction is a topic of contention within EU Competitive Law, we believe this sets our policy apart and could ensure that the UK has the best standpoint from a legal perspective/where the law is concerned, to remain competitive within the market. We recommend that this such a bill should be drafted as soon as possible, considering the fact that the UK is set to leave the EU by March 29th, 2019. Hence, through this paper, we seek to prove that this bill, alongside other trade related bills, should be given priority in Parliament because preserveing businesses and markets is of the utmost importance to the UK’s economy.

Policy Recommendations

  1. Maintaining the general framework of EU Competition Law and re-introducing this into domestic legislation as the Competition Law Act 2019

Considering the current political climate and fears of destabilization of the United Kingdom’s market and business sector, our first policy recommendation is that the UK should continue to  adhere, for the most part, to the general framework provided by EU Competition Law as laid out in:

  1. Treaty on the Functioning of the European Union (2012/C 326/01), Articles. 101, 102 and 104.
  2. Commission Regulation ( of the EU) No 330/2010 of 20 April 2010 on the Application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements ( This is a Block Exemption Regulation).
  3. Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (EC Merger Regulation) and the Implementing Regulation (EU) No 1269/2013 (In technical terms: an implementing Regulation).

We hence propose that the UK would, based on the aforementioned legislation, produce its own domestic legislation: the proposed Competition Law Act 2019. Such a bill would be drafted in the upcoming two years. Hence, its introduction to Parliament could be executed  swiftly following the Britain’s exit from the EU that would be final by May 29th 2019.

By doing this,  the UK would demonstrate its commitment to combat anti-competitive behaviour and ensure market fairness, even though it would no longer be under under the jurisdiction of the ECJ, and all  other EU regulations. On a more practical aspect, there would be minimal conflicts of law between the UK and one of its main trading partners, the EU. This would, in turn,  facilitate business transactions and, if conflict arises, the similarities between jurisdictions would ensure coherent handling of these cases.This solution would also ensure the UK’s place in the global market while satisfying hardline ‘Brexiteers’ who are skeptical of the EU’s ‘overbearing influence’.

  1. Amendments to certain aspects of Competition Law to match international system

The second policy recommendation this paper advances is updating the UK’s current EU-based framework of Competition Law, to match global developments in this field. This would be achieved  by the following two ways:

A. Through the the creation of a Competition Law ‘Best Practices Investigation Committe’

This committee would research and determine how to regularly update UK Competition Law to best meet the demands of today’s global business and the UK’s role within it. Using the OECD Competition Law Committee’s recommendations, this would place the UK at the forefront of innovation in the areas such as; (i) International Co-operation on Competition Investigations and Proceedings; (ii) Fighting Bid Rigging in Public Procurement and; (iii) Regulatory Quality and Performance

There is little doubt that the UK Common Law‘s system and  existing statutory legislation has long been a model of effective law; this initiative would continue this legacy. While the aftermath of Brexit may be destabilising, it does offer an opportunity to improve the law. This would be achieved if we adopt a long-term perspective of internationalism, that would not only stabilise the UK’s economy, but eventually attract more investors and companies to the British market.

B. Improving the categories of legal standards of proof beyond the object/effect distinction

 The method of setting legal standards of proof (proposed and implemented by the Courts of Justice of the European Union) relies upon on the object/effect distinction. This outdated system, established in the 1940s, has been heavily criticised by academics and legal practitioners (see later section on failures of this policy). The simultaneous lack of breadth coupled with  vague definitions of this distinction have led to uncertainty as to whether a case would be seen or not to fall under the object or effect distinction. By adopting standards based on the US Anti-Trust Legislation, cases brought under UK Competition Law would benefit in two ways. By this, the following two categories are specifically implied:

  1.  Standards of Proof Categories would be more accurate. This would ensure that law is far clearer and more comprehensive. It would also mean that the CJEU’s stretching of definitions would no longer be necessary. Anti-competitive behaviour will no longer be simply “object” or “effect”.
  2.  Procedures would be less costly and less lengthy (the current case lasts on average 4 years). With six categories or more, the standards of proof could be appropriately met with the necessary amount of investigation. These principles, borrowed from the American system would ensure clearly defined categories of anti-competitive behaviour, each with their own necessary standard of proof, investigation process and penalties. This would make the enforcement of Competition Law more effective, and hence this would be better at  protecting perfect competition and healthier markets.

3.   Increasing the budget of the National Regulatory Bodies (Financial Conduct Authority and Competition and Markets Association)

The purpose of this would be to (1) Reassure investors and (2) Confirm the UK’s commitment to combating anti-competitive behavior. The proposed budget increase would be approximately of  5%. For context, the CMA’s total operating expenditure in 2016/17 was of £138,227,000[2], whilst the FCA’s annual funding requirement for 2016/17 was of £519,300,000[3]. The increase on the budget would supposedly invest an additional £6,911,350 in the CMA, and £25,965,000 in the FCA. Giving these regulatory bodies an increased capacity would empower them to have a more present role in regulating competition, thus this would compensate for  the EU’s absence in this effect. Further, additional spending would be required to fund the Investigation Committee, the purpose of which would be to integrate OECD Competition Committee Recommendations to UK competition law.

Failures of Previous Policies

The previous policy would  be a continuation of the UK’s current position. In other words, being a country bound by the EU Competition rules  that are based on the TFEU. This has resulted in the UK being bound by laws that have been decided through cases handed down by CJEU.

The policy we propose, however, would effectively be  an update from the object/effect distinction that the CJEU adopts in order to determine anti-competitive behavior and the investigation to discern this. Whether an agreement is anti-competitive by object or by effect is cannot always be ascertained with certainty by business and decision makers. Even if these problems have been recognised by the EU, the CJEU strives to achieve consistency in its judgments and a change in its  position would potentially make EU Competition jurisprudence irreconcilable.[4]

Another problematic area which has arises with regards to EU case law is the struggle to identify an operational definition of competition what is ‘restriction by competition, specifically in light of Article101(1) TFEU.[5] This leaves market participants and business to rely on the black boxes  that are supplied as commission guidelines. But, this is by no means exhaustive. This would leave business and enterprises less certain on areas which may fall into the gaps that arise as a result of these guidelines.

At present, adherence to the EU’s  system has led to  a number of lengthy cases being heard at the CJEU; this attracts costs for litigants as well as EU member states who must pay for the costs of holding CJEU trials through membership fees. Indeed, a more cost effective approach which renders more certainty would be to have a spectrum of what constitutes an infringement of competition rules. This would solve the current system’s failure that  has resulted in attempts to pigeon-hole an action into either an object that results in anti-competitive behaviour or an action which effectively results in anti-competitive behaviour.

Continued adherence to the EU law and enforcement has rendered the UK unable to engage in behaviour that may uplift its own home industry. Under EU State Aid Rules, the EU prohibits the UK from distorting competition by granting aid to specific businesses.[6] A failure of this previous position is the UK’s inability to have a say in which market participants are crucial to the functioning of its economy and ways in which it can assist them. A change to the proposed policy would allow the UK to provide aid to businesses without fear of EU action. This would be beneficial in key industries such as manufacturing and technology which are seen as strategically important industries.

Final Evaluation

Although we are of the opinion that the proposed policy is the best approach to the current situation,  there are certain flaws. Since the UK would be leaving ECJ jurisdiction, some critics might argue the UK will essentially be able to pick and choose which newly established EU principles to incorporate and apply into the new laws. While this is a valid point, the UK will still refer previously established ECJ legislation. Indeed, this is a matter of balancing the positives of having a more flexible source of law as opposed to a more rigid code. Regardless of whether the UK decides to retain EU principles of Competition Law, the years it has spent as part of the EU cannot be erased from its legal history. This means that courts in Great Britain will have to continue referencing CJEU cases when analyzing previous decisions. Thus, it is pertinent to argue in favour of retaining the  same legal model but without direct CJEU influence.

Another point of contention might be the increased expenses that will be incurred by this policy recommendation. These costs, however, should be seen as increased investments in the UK’s own legal system and regulatory bodies that would give investors certainty in the UK’s system and markets. Finally, although the refusal to adhere to ECJ jurisdiction and ECJ rulings could potentially put further strain on the UK’s position in Brexit negotiations, we are of the opinion that the UK’s commitment to adhering to EU Competition Law and its commitment to Competition Law through the ICN can be seen as a sign of good faith.

Conclusion

As of yet, the consequences of Brexit are unknown. The policy proposed by this paper is in some ways damage control following a great deal of social and political upheaval. However, the UK should welcome this opportunity as a chance to improve upon the position that was initially soley based upon EU Competition Law. The proposed approach would also bring about certainty and cost savings to disputes that exist in the UK’s market. Finally, the proposed creation of a committee that investigates the most desirable aspects of Competition Law will give Britain a competitive advantage as well as a golden  opportunity to produce a forward-looking, domestic form of  Competition Law that is compatible with internationally accepted practices.

This policy paper was written by Tadiwa Mandinyenya, Valentina Buccoliero, Lucia Saborio Perez and Gabrielle Stassart at ‘Policy Day’, one of  King’s Think Tank’s annual policy workshops (held on the 13th January 2018).

Endnotes:

[1] ICN Mission Statement, http://www.internationalcompetitionnetwork.org/

[2] CMA budget 2016/2017: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/628985/cma-annual-report-accounts-16-17-print-ready.pdf

[3] FCA budget 2016/17: https://www.fca.org.uk/publication/business-plans/business-plan-2017-18.pdf#page=89

[4] Yi Heng Alvin Sng: The Distinction between “object’ and ‘effect’ in EU competition law and concerns after Groupmeant des Cartes bancaires

[5] Pablo Ibanez Colomo, Market failures, transaction costs and article 101(1) TFEU Case Law

[6] https://www.twobirds.com/en/news/articles/2016/uk/competition-law-implications-of-a-brexit

 

References:

  1. http://www.internationalcompetitionnetwork.org/members/member-directory.asp.
  2. http://www.oecd.org/competition/recommendations.
  3. htmhttps://www.gov.uk/government/uploads/system/uploads/attachment_data/file/628985/cma-annual-report-accounts-16-17-print-ready.pdf
  4. https://www.fca.org.uk/publication/business-plans/business-plan-2017-18.pdf#page=89

 

 

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